All About Producer Companies

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Objects and Activities of Producer Company (As per the Companies (Amendment) Act, 2002, Section No. 581B) Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the members or import of goods or services for their benefit, processing the produce of members, manufacture, sale or supply of machinery, consumables, etc to members, providing education and other welfare activities for members, generation, transmission and distribution and distribution of power, revitalisation of land and water resources, their use, conservation and communications relatable to primary produce, insurance of produce, and other allied or ancillary activities including financing thereof. Who Can Form Producer Company?

• Any one of the following can get a producer company incorporated under the Act: • Any ten or more persons engaged in any activity connected with primary produce, or • Any two or more producer institutions or companies, or • A combination of ten or more individuals and producer institutions.

Characteristics Of Producer Company

• The registered producer company should be treated as a private limited company with the significant difference that a minimum of two persons cannot get them registered.

• These companies are with limited liabilities and limited only by share capital. • The liability of the members is limited to the unpaid amount of the shares held by them5. • As per the new circular, minimum paid-up authorized capital is of Rs. 5 lakh. • The maximum number of members can exceed 50. • It shall never become a public (or deemed public) limited company. • Members' equity cannot be publicly traded but be only transferred.

Why Producer Company?

• To offer a statutory and regulatory framework that creates the potential for producer-owned enterprises to compete with other enterprises on a competitive footing.

• To provide for the method of formation and registration of “Producer Companies” which, inter alia carries the principles of “mutual assistance” and “Co-operation” within the more liberal regulatory framework afforded by the company law with suitable adaptation.

• To provide an opportunity (on a purely voluntary basis), to the existing large multi-state cooperative institutions and societies, to voluntarily convert themselves into the new form of producer companies.


Similarities and Differences between Producer Company and Cooperatives Similarities and Differences between Producer Company and Cooperatives Parameter

Cooperatives Producer Company

Core Philosophy - Cooperation among cooperatives - One for all, all for one

- Competitive Advantage - Equity

Objectives Generally Single objective but could be multi purpose also

Multi-objective

Governed by the Act / Rules

Societies Registration Act 1960 & MACS or called MP Swayattata Adhiniyam 1999

Under Company Amendment Act 1956 under Part X-A or called Producer Company Act 2002

Area of Operation Restricted, discretionary

Entire Union of India

Formation Any 10 or more individuals not belonging to same family (under MACS) can form a Cooperative.

Any 10 or more individuals & being producers or any 2 or more groups/ institutions can form a producer company.

Membership Eligible Individuals as per the provision of the concern Act

Any individual, group, association, producer of the goods or services

Share Transferability Non transferable

Limited to members on par value

Sharing of Profit Limited dividends on shares

Commensurate with volume of business

Management Style & structure

- Democratic - Conventional

- Democratic - Professional

Interface with government

Highly patronized to the extent of interference

Limited to statutory requirements

Extent of Autonomy Limited in “real world scenario”

Fully autonomous, self ruled within provisions of Act

Privileges Many to the extent of making dependent

Equivalent to Coops with sense of competitiveness

Patronage Bonus Not any such provision in the act for motivation of active members.

Act provides excellent provision of patronage bonus to the active members in respect of their contribution in institution’s business

Compatibility with trade and industry

Compatible and comfortable with cooperative sector only

Highly compatible with corporate, organized trade and industry


Governance of Producer Companies To understand the governance of the company, it can be segregated in three major divisions as defined by the law (a detailed description follows): 1. Members/shareholders: In a Producer Company, only a producer or producer institutions can acquire

membership. Producer Company is a membership based body and it can act only through its members. Thus, a company is created by the members, and can also be wound-up by them. Members acts through heir General Body.

2. Board of Directors: Elected by members and may act collectively only in meetings 3. Office bearers: Individual selected to look after the day-to-day affairs of the company, like CEO, accountant, go

down keeper etc. They are salaried people of the company. 1. Members

i. Defining Member: A member is defined as a person or producer institution, whether incorporated or not, admitted as a member of a Producer Company and who retains the qualifications necessary for continuance as such27. Being a membership based entity, membership shall be voluntary and is available to all eligible members (criteria of membership defined in the Articles of Association of a company) who can participate and avail the facilities or services of the Producer Company. Shares in a Company can be held in more than one name, which to be called ‘Joint Membership’. Under the Companies Act, there is no ceiling on the number of persons holding shares jointly.

ii. Modes of Acquiring Membership One can become a Member of a Company by any one of the following ways:

a. By subscribing to the Memorandum of Association28;

A subscriber to the Memorandum of Association becomes a Member ipso facto on incorporation of the Company, in respect of the shares subscribed by him, without any further application by him or allotment of shares to him. He will be liable for whatever number of shares he has subscribed for. A subscriber to the Memorandum remains a Member of the Company until s/he accepts a surrender of the shares for valid reasons to do so by the articles of association or the subscriber himself transfer shares to somebody else.

b. By agreeing in writing: By application and allotment: two essential conditions have to be fulfilled by any person to become a member of a Company other than by subscribing to its Memorandum of Association, they are: Ann agreement in writing to become a member, and

entry in the register By taking a transfer of shares: membership may be acquired from an existing member by purchase if all or any of the shares of the company. A transfer deed duly executed by both the transferor and the transferee together with the share certificate. However, the membership will be granted to transferee only after when the transferor will give in writing in a prescribed form, and when the transfers registered in the books of the company.

By transmission of shares: a person can become a shareholder in consequence or by reason of the death or bankruptcy of a member or any other event constituting transmission. Here also, person will become member only when he applies in writing requesting the company to make him a member and the company puts his/her name on the register of members.


c. estoppel: by allowing his/her name to be in the Register of Members or otherwise holding himself out or allowing to be out as a member.

iii. The Authority of Members on the Company: Members act through the General Body, and the Body alone can: a. Approve the Budget and adopt the Annual Accounts of the Company; b. Approve the quantum of withheld price; c. Approve the patronage bonus; d. Authorize the issue of bonus shares; e. Appoint an auditor; f. Declare a dividend and decide on the distribution of patronage; g. Amend the Memorandum of Association and Articles; h. Specify the conditions and limits of loans that may be given by the Board to any Director; and i. Approve or act on any other matters that are specifically reserved in the Articles for decision by the Members.

iv. Rights of Members

When once a person becomes a member s/he is entitled to exercise all the rights of a member until s/he ceases to be a member in accordance with the provisions of the Act. The rights of a Member are:

to transfer his shares; to vote on resolutions at meetings of the Company; *to requisition an extraordinary general meeting of the Company or to be a joint requisitions; to receive notice of a general meeting; to attend and speak in a general meeting; 2. Board Of Directors

Every Producer Company should have a Board of Directors of not less than five and not more than fifteen. i. Powers and Functions of the Board • The Board may act only in areas not reserved to the General Body and may not exercise executive

functions. In general, the Board has authority and is responsible for formulating, supervising, and monitoring of the performance of the producer Company in respect of the following matters33:

• Determination of the dividend payable. • Determination of the quantum of withheld price and recommended patronage to be approved at General

meeting. • Admission of new members. • Pursue and formulate the organizational policy, objectives, establish long-term and annual objectives, and

approve corporate strategies and financial plans • Appointment of a CEO and other officers, as may be specified in the Articles. • Exercise superintendence, direction and control over CEO and other officers. • Sanction any loan or advance, in connection with the business activities of the Producer Company to any

member, not being a director or his relative. • Investment of the funds of the Company in the ordinary course of its business. • Acquisition or disposal of property of the company in its ordinary course of business. • Check that proper ‘books of account’ is maintained. • Ensure that annual accounts are placed before the annual general meeting with the auditor’s report. • Take such measures or do such other acts as may be required in the discharge of its functions or exercise

of its powers. • The Board may make recommendations in the case of those matters reserved for decision of the General

Body.


All the powers specified above shall be exercised by the Board only by means of a resolution passed at its meeting and decision can be made or resolution adopted by ‘circulation’. Also to be noted that a director or a group of directors who do not constitute the Board, shall not exercise any of the powers exercisable by it.

ii. Restrictions on the Power of the Board • The Board of Directors shall be authorised to exercise the following powers on behalf of the Company

subject to the approval of the Members by a resolution adopted in a general meeting: • approval of budget and adoption of annual accounts of the Producer Company; • approval of patronage bonus; • issue of bonus shares;

Secretary of the Producer Company (1) Every Producer Company having an average annual turnover exceeding five crore rupees in each of three consecutive financial years shall have a whole-time secretary. (2) No individual shall be appointed as whole-time secretary unless he possesses membership of the Institute of Company Secretaries of India constituted under the Company Secretaries Act, 1980. (3) If a Producer Company fails to comply with the provisions of sub-section (1), the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues. Internal Audit Every Producer Company shall have internal audit of its accounts carried out, at such interval and in such manner as may be specified in articles, by a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Institute of Chartered Accountants Act, 1949.

Statutory Registers, Books etc. to be maintained

• Share/Debenture transfer register [Section 108] • Copy of every instrument deed, etc., creating any charge which requires registration [Section 136] • Register of charges [Section 143] • Register of members [Section 150] • Index of members [Section 151] • Copies of annual returns and certificates and documents required to be annexed thereto [Section 159 to 161] • Minute books of Board Meetings & meetings of committee of the Board [Section 193] • Minute books of general meetings [Section 193] • Register of dividend declared and remaining unpaid [Section 205] • Proper books of accounts [Section 209] • Proper books of accounts in relation to transactions effected at Branch Office. • Register of contracts, companies and firms in which directors are interested [Section 301]. • Register of renewed and duplicate certificate [Rule 7(2) of the Companies (Issue of Share Certificates) Rules,

1960] • Books of accounts of producer company [Section 581ZE(1)] • Register of directors, etc.[Section 303] • Register of directors’ share-holdings, etc. [Section 307] • Register of inter-corporate loans and investments [section 372A] • Register and index of beneficial owners. • Register of particulars of investments of producer companies [Section 581ZL(7)].

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All About Producer Companies